Countrywide Loans Sought Favor With Fannie Mae, Report Says

By Clea Benson and Roxana Tiron -
Jul 5, 2012

Countrywide Financial Corp. gave
discount loans to former and current members of the U.S.
Congress and executives at Fannie Mae (FNMA) as it lobbied to scuttle
legislation that would have diminished its sale of sub-prime
mortgages, according to a report released today by House
Oversight and Government Reform Committee Chairman Darrell Issa.

The report, which caps a three-year inquiry by the panel,
concluded that between 1996 and 2008, Countrywide executives
used a special VIP loan program to try to stop legislation that
would have restrained the company’s business with Fannie Mae, a
government-sponsored mortgage company. Countrywide had an
exclusive agreement to sell billions of dollars in mortgages to
Fannie Mae at a discounted rate, according to the report.

“This report sheds new light on Countrywide’s relationship
with Fannie Mae and how Countrywide used its VIP program to
cement its ties to its taxpayer backed business partner,” Issa,
a California Republican, said in a statement accompanying the
report. “Other than Countrywide, no other entity’s employees
received more VIP loans than Fannie Mae.”

The report contained new details about the lengths to which
Countrywide executives were willing to go to accommodate Fannie
Mae leaders who were looking for good deals on mortgages.
Countrywide was based in Calabasas, California, and was acquired
by Bank of America Corp. in 2008.

Johnson’s Credit

Jim Johnson, chief executive officer of Fannie Mae from
1991 to 1998, earned $100 million during his time at the
company. Nonetheless, Countrywide employees expressed concern
about giving him a loan because he didn’t pay his bills
regularly and had a low credit score, according to e-mails
published in Issa’s report.

Because of Johnson’s credit report, “I’m concerned about
signing on these loans,” Countrywide underwriter Gene Soda said
in a 2005 e-mail to another Countrywide employee, according to
the report.

Countrywide’s chief executive officer, Angelo Mozilo, who
had a close relationship with Johnson, wrote back, instructing
his employees to give Johnson a loan “1/2 below prime.”

“Don’t worry about” the credit score, Mozilo wrote. “He
is constantly on the road and therefore pays his bills on an
irregular basis but he ultimately pays them.”

In another e-mail, Mozilo wrote, “Jim Johnson continues to
be a source of many loans for our company and this is just a
small token of appreciation for the business that he sends to
us.”

Raines’s ‘Arrogance’

Mozilo’s view of Johnson’s successor at Fannie Mae,
Franklin Raines, wasn’t as favorable, according to e-mails
quoted in the report.

“There is no question, in retrospect, that Franklin Raines
was the cause of much of his problems,” Mozilo wrote in a 2005
e-mail after an accounting scandal led Raines to step down from
Fannie Mae. “His arrogance and his total lack of sensitivity to
the world around him was at the root of all that you read
today.”

Nonetheless, Countrywide gave Raines five VIP loans, the
report said.

“Even as Countrywide’s CEO Mozilo mocked Fannie Mae and
top executives for its crony capitalism business model, he would
nonetheless personally intercede to ensure executives had access
to discounted Countrywide loans,” Issa said in his statement.
“These relationships helped Mozilo increase his own company’s
profits while dumping the risk of bad loans on taxpayers.”

Taxpayer-Owned Companies

Washington-based Fannie Mae and McLean, Virginia-based
Freddie Mac were taken into conservatorship by the U.S.
government in September 2008 after purchases of risky loans
almost pushed the companies into insolvency. Since then, the two
taxpayer-owned companies have received almost $190 billion from
the U.S. Treasury.

Issa’s investigation found that Countrywide’s VIP unit
processed loans for several lawmakers, including then-Senator
Christopher Dodd, a Connecticut Democrat who led the committee
with jurisdiction over banking; Senator Kent Conrad, a North
Dakota Democrat who is chairman of the Senate Budget Committee;
Republican Representatives Howard P. “Buck” McKeon and Elton Gallegly of California and Pete Sessions of Texas; and
Democratic Representative Edolphus Towns of New York.

Sessions requested that he not receive special benefits or
treatment from Countrywide, according to the House panel’s
findings. As a result, Countrywide didn’t give Sessions a
discount on his loan, the panel said in the report.